Stocks drop following Fed doubts about stimulus
NEW YORK — The stock market posted its biggest loss this year on news that Federal Reserve officials suggested the central bank scale back its effort to keep borrowing costs low.
Minutes from the Fed’s January meeting seemed to catch investors by surprise when they were released at 2 p.m. EST. Several Fed policymakers worried the bank’s program of buying $85 billion of bonds each month could eventually unsettle financial markets or cause the bank to take losses. Even so, most of the Fed officials thought the economy faced fewer risks than in December.
Judging by the market’s reaction, the Fed appears to be closer to ending its support for the economy than traders had expected, said Dan Greenhaus, chief global strategist at the brokerage BTIG. “We’re at a point now where we’re discussing how we’re going to end this, not whether it’s going to end,” he said.
The S&P 500 index sank 18.99 points to 1,511.95, a loss of 1.2 percent. That’s the biggest one-day drop since Nov. 14.
By buying bonds, the Fed drives up their prices and lowers interest rates, which have stayed at record lows. That keeps costs low for mortgages and other types of loans.
The major indexes drifted sideways in morning trading then turned lower in the early afternoon after Caterpillar reported weaker sales of its heavy trucks and mining equipment. Stocks fell further after traders had time to digest the Fed minutes. The S&P 500 lost 11 points in the last hour and a half of trading.
The Dow Jones industrial average fell 108 points, or less than 1 percent, to close at 13,927. Merck helped curb the Dow’s fall, rising 1 percent, on news it teamed up with a Korean drugmaker to create drugs.
The Nasdaq composite fell 49 points, or 1.5 percent, to 3,164.
News that Apple’s major supplier, Foxconn, stopped hiring at its largest plant in China helped push down Apple’s stock. Foxconn reportedly said the hiring freeze was not caused by slumping orders for iPhones. Apple fell $11.14 to $448.85.
The stock market surged at the start of the year then drifted slightly higher in recent weeks with few major events to drive trading one way or another. That could change as soon as Congress returns from vacation next Monday. Deep federal spending cuts are scheduled to start March 1 unless Congress and the White House find a way to avoid them.
Both the Dow and the S&P 500 have gained 6 percent for the year. The Nasdaq is up 5 percent.
Even though housing construction slowed down in January, the Department of Commerce reported Wednesday that new housing starts remained strong. Builders started construction at an annual rate of 890,000 last month, down 8.5 percent from December. Applications for building permits increased.
The Dow closed at its highest level of the year Tuesday, bringing it within 1 percent of 14,164, the record high reached more than five years ago.
In the U.S. government bond market, the yield on the 10-year Treasury note slipped to 2.01 percent from 2.03 percent late Tuesday. The yield has climbed steadily higher since the start of the year, when it traded around 1.70 percent.